Since the housing market went smash-bang-crash into a deep ravine a few years back, we’ve written numerous stories of homeowners with mortgages they couldn’t pay — and some who could pay and chose not to — who opted to walk away and let the bank sell the house at a foreclosure auction. But if these people thought that they could abandon the home and have only a damaged credit rating to show for it, there’s a chance they could be very, very wrong.

If the highest price the bank gets at auction still doesn’t cover the amount left on the loan, 41 states and the District of Columbia allow lenders to sue those former homeowners for the difference.

Since many properties were over-valued during the height of the housing boom — and that prices for foreclosed homes rarely fetch the full market value — the Wall Street Journal says more and more lenders are going after the borrowers for the money.

The Journal reports that for properties sold at a loss to the bank at auction, $100,000 is the average gap between the sale price and the remaining value on the mortgage.

While 64% of the 4.5 million foreclosures since the start of 2007 have taken place in states that allow banks to sue borrowers over the loss, the Journal found that only a small minority of shortfalls end up in court, in part because the bank doesn’t want to take the PR risk of suing someone who lost their home.

However, when it comes to strategic defaulters, those who could have continued to make mortgage payments but chose not to because the value of their homes had crashed, banks don’t have as many concerns about looking villainous.

Thus, even though the foreclosure numbers are dropping in some places, deficiency judgements are on the rise. The Journal cites the example of Lee County, FL, where 172 deficiency judgments were entered in the first seven months of 2011, up 34% from a year earlier. All of this occurred while total foreclosures in the county dropped.

The clerk and comptroller of Palm Beach County, FL., tells the Journal she expects “a massive wave of these cases as banks start selling the judgments to debt collectors.”

Lenders typically have five years following the foreclosure to sue, so many former homeowners are not out of the woods and may find themselves the recipient of a bill for $100,000 or more.

Thanks to humphrmi for the tip!

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